Greetings, and welcome to the electroCore First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Dan Goldberger. Thank you, sir. You may begin.

Thank you all for participating in today's electroCore Earnings Call. My name is Dan Goldberger. I'm the Chief Executive Officer of electroCore, and I'm also a member of the Board of Directors. Joining me today is Brian Posner, Chief Financial Officer. Earlier today, electroCore published results for the first quarter ended March 31, 2024. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during the call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, any guidance, outlook or future financial expectations or operational activities and performances, are based upon the company's current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list of the risks and uncertainties associated with the company's business, please see the company's filings with the Securities and Exchange Commission. electroCore disclaims any intention or obligation except as required by law, update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information that is accurate only as of the live broadcast today, May 8, 2024. electroCore was founded in 2005 to commercialize the use of our proprietary noninvasive vagus nerve stimulation for medical and general wellness applications. The vagus nerve is the longest cranial nerve in the…

Thank you, Dan. Net sales for the 3 months ended March 31, 2024, increased 96% as compared to the 3 months ended March 31, 2023. The increase of $2.7 million is due to an increase in net sales across major channels, including our prescription gammaCore medical devices sold in the U.S. and the board and revenue from the sales of our nonprescription general wellness and human performance, Truvaga and TAC-STIM brands. Gross profit increased by $2.2 million for the 3 months ended March 31, 2024, compared to the 3 months ended March 31, 2023. Gross margin was 84% for both periods. Total operating expenses in the first quarter ended March 31, 2024, were approximately $8.4 million as compared to $8.5 million for the quarter ended March 31, 2023. Research and development expense in the first quarter of 2024 was $399,000 as compared to $1.8 million in the first quarter of 2023. This decrease was primarily due to a significant reduction in investments associated with Truvaga Plus. Selling, general and administrative expense of $8 million for the 3 months ended March 31, 2024, increased by $1.3 million or 19% as compared to $6.7 million for the comparable period in 2023. This increase was primarily due to our greater variable selling and marketing costs consistent with our increase in sales. GAAP net loss for the first quarter of 2024 was $3.5 million or $0.53 per share as compared to the $5.9 million net loss or $1.24 per share for the first quarter of 2023. This significant improvement was primarily due to the increase in net sales to $5.4 million for the first quarter of 2024 compared to $2.8 million during the same period of 2023. Adjusted EBITDA net loss in the first quarter of 2024 was $3.1 million as compared to adjusted EBITDA net loss of $5.1 million in the first quarter of 2023. These improved results are primarily due to the 96% increase in first quarter 2024 net sales over the first quarter of 2023. A reconciliation of GAAP net loss to non-GAAP adjusted EBITDA net loss has been provided in the financial statement tables included in today's press release. Cash, cash equivalents and restricted cash at March 31, 2024, totaled approximately $8.1 million as compared to approximately $10.6 million as of December 31, 2023. And now I'll turn the call back over to Dan.

Thank you, Brian. I'm very pleased with the continued momentum in our prescription headache and general wellness businesses. Our operating metrics, especially revenue and gross margin, continue to beat internal expectations, and I'm very enthusiastic about the company's long-term prospects across all brands and product lines. The launch of Truvaga Plus was received favorably by the market. The brand continues to show tons of potential as a direct-to-consumer general wellness offering, and we will continue selling Truvaga products through our e-commerce site, www.truvaga.com. We'll explore additional channels and product offerings to increase the lifetime value of each customer as we go forward. The pipeline of interest from different branches of our active duty military continues to develop for our TAC-STIM products. Sales of the TAC-STIM brand continue to be irregular as active duty units purchasing both for pilot deployment longer term. We also believe that there may be civilian crossover as first responders, lead athletes, transportation workers, traders and e-gamers become aware of the human performance benefits published so far. Demand for our prescription gammaCore therapy in the VA channel continues to grow based on clinical performance and our increased presence in the field. We have approximately 35 straight commission sales agents, representing about 90 to 99 reps in the field, managed by our small team territory business managers and supported by our customer experience team. This hybrid structure is very scalable as we deploy prescription gamma core around the country. During the first quarter of 2024, our sales and marketing expense increased by approximately $1.4 million over the first quarter of 2023, while sales grew by $2.7 million signaling real leverage opportunities in the P&L. Further out, we are working towards establishing additional indications for prescription gammaCore to treat post-traumatic stress disorder, opioid use disorder and other clinical opportunities.…

[Operator Instructions] Our first question comes from Jeffrey Cohen with Ladenburg Thalmann.

So I guess, firstly, could you talk about -- you talked about the channels and the mix that you anticipate on Truvaga. I know that you placed a couple of hundred units thus far. How do you expect that to fold out as far as one versus the other?

That's a great question. The Truvaga 350 is offered at a significantly lower price than the Truvaga Plus. And the mix, it's early, right? It's -- we've only been offering the new product, Truvaga Plus for 3-4 weeks now. And it's been a surprisingly successful. It's roughly a 50-50 product mix for that 3 weeks, but I wouldn't -- we're not -- I wouldn't try to draw any conclusions from the first 3 weeks.

Got it. Okay. And then could you talk about the OpEx and the components, I know that R&D was down tremendously, which identified as Truvaga Plus development concluding. But what kind of follow-up on R&D? And where should we see that for second quarter and beyond full year and then SG&A as well. Is that flattish from that increase from last year or it'll continue to increase sequentially from that $8 million in the first quarter.

So for R&D internally, we're going to keep a lid on it for this year. We've got lots and lots of great product ideas and label extensions, but we want to drive to getting to cash positive and profitability. So we're modeling R&D at sort of $8.5 million for, I'm sorry, no, I misspoke, $2.5 million for the full year, right, less than half of last year. G&A, we expect it to be somewhat down from last year. We're continuing to look for opportunities to reduce expenses. But our marketing spend, either commissions, in our prescription business or advertising spend in our consumer business are going to be scaling and in our prepared remarks, we internally remodel our variable sales and marketing expense at about 30% on a blended basis.

Add to what Dan said is the G&A part is seasonally high in the first quarter because of audit related costs, the auditors, the lawyers, and Sarbanes-Oxley, all the requirements of a public company. So the G&A part should be down in the remaining quarters.

So to be clear, I misspoke. I want to be clear that we're modeling R&D at roughly $2.5 million this year, not that higher number. I don't know why that popped in my head. I apologize.

Not a problem. And then I guess, lastly, maybe talk about inventories currently and how they've been and how you expect that to play out over this year. I'm sure you're building up some new territory with Truvaga Plus and perhaps TAC-STIM Black and reducing inventory on U.S. commercial.

Yes. So I'll start. And bottom line is we've worked down a lot of inventory over the years for the first quarter since I think Dan and I have been with the company, we don't have the caption long-term inventory anymore, which is a function of revenue, right, and forecasted revenue. So we're very optimistic about the future. Dan, I don't know if you want to add anything about the supply chain for the new products or...

The inventories, we're still running heavy on inventory as a multiple of daily sales because we're not very good at predicting product mix, for example, like you touched on, Jeff, with how many of the 350s are we going to sell versus the pluses. So we're keeping more inventory, more days of inventory. But as we gain more understanding of the business and specifically the product mix, I think we're going to be able to steadily reduce inventory as a multiple of day sales. In other words continue to generate cash from inventory.

Our next question comes from Bruce Jackson with The Benchmark Company.

I wanted to start with the VA. How much of your VA revenue comes from these centers of excellence, the headache centers of excellence?

That's a good question. We don't break that out in our public discourse. Dr. David Sico (sic) [ Dr. Jason Sico ], who runs the headache centers of excellence, I believe there are 20 of them around the country right now. The newest guidelines, best practices for managing complex headache, have gammaCore as first-line therapy, but we have not been breaking out by facility, the revenue contributions.

Okay. So gammaCore is the first-mile alternative for these centers. What do you think needs to happen in order to get greater uptake from the VA system?

So great question. We think we're still less than 1% penetrated within the VA hospital system. Every facility is different and has to be treated as a different customer. But in general, we start off in neurology, which is where the complex headaches are treated. And our goal is to work through the facility to women's health, to pain management, to health and wellness and ultimately to primary care. And so within each facility, we have a lot of opportunities to go deeper. Headache is treated in the emergency room and is treated in primary care in greater numbers than by the specialist departments.

Okay. And then last question is on the study that's being conducted in Newcastle. Is that for Parkinson's and the release date for the data seems to have like moved out a bit. Is that just because of the standard data analysis and you're working with physicians who are very busy. Or is there's some other factor involved there?

So we really don't know. I wish I knew more. This is an investigator-initiated trial of finance by the U.K. Ministry of Health and the European Union. The investigators are full-time clinicians. They had the last patient, last visit in December, late December of 2023, and we're anxious to see the data, and they will share the data with us when they share the data with us. It's completely out of our control.

Our next question comes from Swayampakula Ramakanth with H.C. Wainwright.

This is RK from H.C. Wainwright. A couple of quick questions. So the VA channel continues to grow and continues to grow at a very good clip. This quarter, as you said, you did close to 130% growth year-over-year. Though the number of centers grew only less than 30 centers compared to last year. So I understand some parts of it is probably the depth within certain centers. But how much -- assuming that you're not going to add more centers or not in big amounts from here onwards, how sustainable is this growth and are there places in the current centers where you're not at all tapped and you're kind of asking your sales folks to go figure out these additional centers where you could commercialize gammaCore?

Yes. RK, you're absolutely on the right track. It's far more efficient for us to go deeper into a facility where we have existing business for at least 2 reasons. The first is that the supply chain folks know us and they have loaded us into their computer systems. And the second is that once our sales guy has identified a champion within the facility, he has a reason or she has a reason to be in the facility and can spend additional time calling on other prescribers within neurology, for example, but even more importantly, calling on other departments within the facility. So we're coaching our team to go deeper within the facilities that are already opened up. The other driver we have is just is old-fashioned feet on the street. We are scaling the business with what I call 1099 reps, right? These are independent agents. They get paid straight commission. They probably have 2 or 3 or 4 other products in their bag that they are selling into the same customer, into the same facility. And as we have success, that success breeds success, and it's becoming more and more efficient for us to recruit additional new 1099 reps. So we can we can scale the business in that direction as well just by having additional feet on the street.

And then talking about some of these new indications that you're looking at and also the recent data that you released, I believe, on PTSD. When you look at VA centers, these are the places where you would see these additional indications -- are commercializing for additional indications as an opportunity. How much of this -- how much of the feedback that you get from the VA Hospitals, are you kind of utilizing to think about new indications for gammaCore? And just on the PTSD itself, how soon do you think you can get that indication so that you can start commercializing for that as well?

Yes. So great question. I get -- I'm very superstitious about the FDA process. So I'm not going to speculate about the timing of getting the additional -- the label extension. We are aware that there is off-label prescription of gammaCore for PTSD in the VA hospitals, but also in our cash pay business. In the VA hospital system, we don't see the diagnosis. So we don't have a clear view as to what percentage of our prescriptions are for PTSD or Parkinson's or the other indications that we're working on. But we are aware that there is at least some off-label prescribing going on.

Okay. On the TAC-STIM business, you said that the second quarter could be flat. I understand that, but going into third quarter, September happens to be the fiscal year for the government. So do you -- as you enter the next fiscal year, how are you thinking about growth? Can there be additional contracts coming through? Or is this a long-drawn process and it's really hard to read in terms of new contracts coming in the next fiscal year? I'm just trying to think about the cadence of -- I know you said it's very hard to predict the cadence of numbers, but at the same time, I'm just trying to get a feel for like -- what are the ways that can be push and pull on that number?

Yes. So we're already getting, I'll call them, contingent purchase orders and the contingency is around the DoD budget process. Things have settled down. But every time there was a continuing resolution in Congress, our purchasing contracting process came to a full hold. So we do have a funnel of these contingent purchase orders, but I have no visibility as to the timing of those contingent purchase orders, and we're not going to try and give any revenue guidance around it until we know for sure that what the delivery and revenue recognition dates are going to be.

[Operator Instructions] Our next question comes from Walter Schenker with AMZ (sic) [ MAZ ] Partners.

Series of unrelated questions. There is published data. This is on the military on learning and on improved learning and on improved performance by drone pilots. Do you have any color that you can comment on what type of areas in the military are buying this? Or is it still just what type of units or just some sense.

Yes. So there's very little that we're allowed to say publicly, but several Army Special Forces, battalions have acquired a significant number of handsets for pilot deployment. Similar number of Air Force Special Forces units and then AMC, Air Mobility Command, which are the very large long-distance transport aircraft that the Air Force deploys. Those are the 3 areas that are in pilot deployments at this point.

Okay. Probably unrelated questions. You would briefly mentioned at some point, and I do a plug about my wife that one of the benefits although there are many benefits, you've done some stuff on gastroparesis is that gammaCore may help or does help people with some stomach issues, you had mentioned some people might be using it off-label in conjunction with the weight loss drugs, which sometimes cause different stomach issues. Is that actually -- is there any material comment you can make on that or a couple of doctors have tried it or who knows? It's always good to have something related to weight loss, by the way, in this market.

I can certainly use something. But -- so what you're describing is anecdotal commentary that we've heard from several of our customers especially in the functional medicine, integrated medicine, cash pay practices where they're dealing with complicated patients, and they are prescribing a lot of those new injectable weight loss drugs. Nothing that I would describe as scientific, certainly, no prospective trials. But -- it's a lot of fun to hear the anecdotes that it's working as a combination therapy in weight loss and gastroparesis.

And lastly, now that Truvaga Plus is, at least as I look at a cleaner sale, you buy it, you've got it forever. You keep recharging it, you don't have to reload or anything. Have you thought about or where are you in possibly marketing it through other channels or other people beyond just your limited exposure on the Internet mean theoretically, again, it could be at a drug store, it could be a health nutrition stores, it could be QVC, you name it, lots of different places. So what are your thoughts about expanding beyond just you and the Internet.

Yes. I really appreciate the opportunity to expand on it. And look, we think those are all very important 2025 initiatives. It's the first new product launch that the company has done in a long time with a new team of people. We wanted to keep a lid on it, so to speak, for the first 30, 60 days. Right now, it's going very smoothly. We haven't had any significant product problems. And so if we run another 30 days, the way the first 30 days have gone the return rates stay where they are, then I think you'll see us looking to more aggressively expand into a variety of other direct-to-consumer distribution channels both brick-and-mortar as well as Internet sales.

Our next question is from Nicholas Sherwood with Maxim Group.

Congrats on the quarter. My first question is, do you have any update on your agreement with Joerns Healthcare?

So the update, and I think it was -- some of it was in our prepared remarks, most of the work is now on our side to develop prescriber champions. The back office is in place. And by back office, I mean the ability to have a prescription accepted at Joerns adjudicated. They were fully loaded into their computer system. We have to -- we -- our field sales team has to generate the demand and they're just getting started doing that and frankly, having a lot of fun doing it. We're getting excellent reception. You don't see it in the revenue yet, but I think we will before the end of the year.

Awesome. Thank you for the color. And then switching gears to Truvaga Plus. Do you see any sort of -- I guess it's not necessarily like SaaS revenue, but do you see sort of like recurring revenue coming from in-app purchases or subscriptions?

Yes. That's in our product development pipeline for 2025 and 2026. It's absolutely the vision to do to take full advantage of the mobile app connectivity not just for our product, but to interact with other health and wellness apps with Apple Health. And then the data can also become a value proposition so -- but not this year.

Absolutely. And then one more, more of a high-level question. You had partnered with the NFL of this last season. Have you received any further interest from them or any other sports leagues or athletes that you can speak about at this time?

So a lot of interest, nothing that I can speak about publicly. And specifically, the NFL research program, they won't even tell us which teams are using it, which is very frustrating as a football fan.

Yes. Maybe DraftKings doesn't want sort of find that either, but...

Exactly.

Looking at -- and finally, just -- I think I may have missed this earlier, but what was the VA DoD prescribing facility count and also the cash pay prescriber account?

We are looking for our own numbers, 151 VA facilities, up from 124. And prescription prescriber is 2023, up from 1,218.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Dan Goldberger for closing comments.

Thank you, operator. We appreciate everybody joining today's call. Our employees continue working tirelessly to deliver products and therapies that improve the health and wellness of patients and customers alike. The team has done a great job of staying nimble, scaling the business, responding to the needs of our customers, launching a new product. And all of that has resulted in the accelerating growth that we just reported. I also want to say thanks to the health care professionals and their patients for their loyal support of gammaCore therapy and to the growing number of consumers who have adopted Truvaga products as a tool to improve their general wellness. You all have a great day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.